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Thursday, June 12, 2014

Economic Growth Isn't Leading to Less Poverty

Remind me again what "growth" is good for?

The surest way to fight poverty is to achieve stronger economic growth. That, anyway, is a view embedded in the thinking of a lot of politicians and economists.

“The federal government,” Paul Ryan, the House Budget Committee chairman, wrote in The Wall Street Journal, “needs to remember that the best anti-poverty program is economic growth,” which is not so different from the argument put forth by John F. Kennedy (in a somewhat different context) that “a rising tide lifts all boats.”

In Kennedy’s era, that had the benefit of being true. From 1959 to 1973, the nation’s economy per person grew 82 percent, and that was enough to drive the proportion of the poor population from 22 percent to 11 percent.

But over the last generation in the United States, that simply hasn’t happened. Growth has been pretty good, up 147 percent per capita. But rather than decline further, the poverty rate has bounced around in the 12 to 15 percent range — higher than it was even in the early 1970s. The mystery of why — and how to change that — is one of the most fundamental challenges in the nation’s fight against poverty.

The disconnect between growth and poverty reduction is a key finding of a sweeping new study of wages from the Economic Policy Institute. The liberal-leaning group’s policy prescriptions are open to debate, but this piece of data the researchers find is hard to dispute: From 1959 to 1973, a more robust United States economy and fewer people living below the poverty line went hand-in-hand. That relationship broke apart in the mid-1970s. If the old relationship between growth and poverty had held up, the E.P.I. researchers find, the poverty rate in the United States would have fallen to zero by 1986 and stayed there ever since.

Five years after the lowest depths of the recession, America has finally regained all of the jobs that we lost in that economic calamity. In absolute terms, America has never been richer. Now we can turn our attention to equality.

Remember early 2009? Economic hell. And now? The USA is booming. Booming, I tell you! From the Wall Street Journal:

The net worth of U.S. households and nonprofit organizations—the value of homes, stocks and other assets minus debts and other liabilities—rose roughly 2%, or about $1.5 trillion, between January and March to $81.8 trillion, the highest on record, according to a report by the Federal Reserve released Thursday.

That's right—our nation's collective wealth (at least as we currently measure it, although love is the most valuable thing of all) now stands at its highest point in history. This fact also reveals another, equally important fact: our nation is not one in which economic growth necessarily alleviates poverty. Neil Irwin has a great piece explaining this dilemma. From the late 1950s until the mid-1970s, economic growth in America was accompanied by a decline in the poverty rate. Then, those two measurements decoupled. Throughout the 1980s and up to the present day, the economy continued to grow, but poverty stopped declining as that happened. This roughly coincides with the overall post-Reagan era rise in economic inequality in America. At the same time, the social safety net that we offer to the poor has been eroding.

2 comments:

I can't get too worked up about this. For a start, what is the definition of "the poverty line"? Is it constant throughout all these stats?

And if this line is something like "Earning less than half of the national average wage" then it's relative poverty, not absolute. And if it's relative, then a non-decreasing proportion of people 'in poverty' doesn't necessarily contradict the "floating all boats" idea.

In fact, once economic growth has reached the point where everyone has so much stuff they don't know what to do with it, or it has achieved a technological nirvana where people - rich or poor - choose to spend most of their time poking at screens, then maybe the halt in 'improvement' of the poverty stats is a natural state of affairs.

As you often point out, working is a horrible way to spend one's life, and maybe there's a growing number of people who realise that they can have enough 'stuff' without trying too hard. Officially it puts them below the poverty line, but actually they're enjoying life just as much as they would be working in an office or factory..?

American labor is now competing with foreign labor and machines- wages are lower. Profits are up because labor costs are lower. That is our "recovery." But someday there might not be enough middle class and rich people left to buy the stuff to keep profits up.